As the famous saying goes ‘A penny saved is a penny earned‘. Tax planning is one of the ways which can help you save on taxes and increase your income. The income tax act provides deductions for various investments, savings and expenditures incurred by the taxpayer in a particular financial year. We will discuss some of the avenues which can help you save taxes.
We have a tendency to invest in various products that improve our quality of life but can also cause considerable financial distress. To significantly alleviate this burden, the government offers income tax exemptions on direct taxes charged on your whole pay.
Buy a home loan and enjoy tax benefits under Section 80C
Numerous government-mandated programs, such as the PMAY (Pradhan Mantri Awas Yojana) and DDR (Delhi Development Authority) Housing Scheme, aim to make housing more accessible in India, while Sections 80C and 24(b) minimize monetary liability through lower tax burdens.
Whole annual income spent on repayment of the principal borrowed amount is eligible for Section 80C deductions of up to 1.5 lakh. Section 24(b) allows for tax exemption on the interest portion of a house loan up to Rs 2 lakh per year.
Furthermore, if you rent out the newly purchased home, the entire interest component is exempt from annual income tax computations.
Persons who purchase a property for the purpose of building a home can also profit from section 24(b), as long as the construction process is completed within five years.
Section 80EEA allows you to claim an additional reduction in your annual tax liability if you are a first-time homeowner.
Buy a health insurance policy
People can claim tax deductions under Section 80D for the portion of their annual taxable income spent on premium payments. Depending on the age of the covered, different sums are exempt from such income tax computations.
Park your money in government schemes
Numerous government-mandated schemes offer high returns on total investments along with tax waivers. Individuals can claim up to Rs 1.5 lakh spent on such investments as tax waivers on total annual income, under Section 80C of the Income Tax Act.
Tax exemptions can be availed by investing in the following tools:
- Senior Citizen Savings Scheme (SCSS)
- Sukanya Samriddhi Yojana (SSY)
- National Pension Scheme (NPS)
- Public Provident Fund (PPF)
- National Pension Scheme (NPS)
Buy life insurance plans
Section 80C of the Income Tax Act provides for premium payments, and Section 10(10D) provides for the sum promised received at maturity or early death of the insured, whichever occurs first.
Yet, if the insurance is bought after 1st April 2012, tax benefits of up to Rs 1.5 lakh paid on annual premiums can be claimed under Section 80C, provided it is less than 10% of the entire sum assured.
If the policy was purchased before to April 1, 2012, claims under Section 80C can be filed as long as the total premium payments do not exceed 20% of the sum guaranteed.
Acquisition or renewal of life insurance coverage, as well as annuity payments on such plans made through monthly salary, are also eligible for tax exemptions of up to Rs 1.5 lakh under Section 80CCC.
Only certain pension funds under section 23AAB are eligible for exemptions of up to Rs 1.5 lakh under section 80CCD(1).
Investment options under Section 80C
The most popular tax-saving options available to individuals and HUFs in India are under Section 80C of theIncome Tax Act, Section 80C includes various investments and expenses you can claim deductions on – up to the limit of Rs. 1.5 lakh in a financial year.
| Investment | Returns | Lock-in Period |
| 5-Year Bank Fixed Deposit | 6% to 7% | 5 years |
| Public Provident Fund (PPF) | 7% to 8% | 15 years |
| National Savings Certificate | 7% to 8% | 5 years |
| National Pension System (NPS) | 12% to 14% | Till Retirement |
| ELSS Funds | 15% to 18% | 3 years |
| Unit Linked Insurance Plan (ULIP) | Varies with Plan Chosen | 5 years |
| Sukanya Samriddhi Yojana (SSY) | 7.60% | N/A |
| Senior Citizen Saving Scheme (SCSS) | 7.40% | 5 years |
Other Tax Saving options beyond Section 80C
Apart from the 80C deductions, there are various deductions under Section 80 you can use to save on income tax. Tax benefits on health insurance premiums and home loan interest are a few-
- Medical insurance premium to be claimed at Rs. 50,000. (Rs 25,000 for self-spouse and children and Rs 25,000 for dependent parents below 60 years). Claim medical insurance premium paid up to a maximum of Rs 1,00,000 per annum if availed for senior citizens. If senior citizens are not covered under any health insurance, then medical expenditure incurred can be claimed under 80D up to Rs 50,000
- Interest paid on a home loan can be claimed as a deduction under section 24 up to Rs 2 lakh. Section 80EE also allows you to claim a deduction of up to Rs 50,000 on home loan interest which is over and above the limit of section 24. Eligibility of additional interest of Rs 1.5 lakh on purchase of a new house under affordable housing scheme as per section 80EEA is extended till 31st March 2022
- A home loan would also help you in reducing your taxable income as the principal portion of the home loan can be claimed under Section 80C up to Rs 1.5 lakh and the interest portion can be claimed as a deduction from income from house property
- Any charity to notified institutions or funds can be claimed as a deduction under section 80G
- Interest paid on education loan is allowed as deduction under section 80E
How to plan your tax-saving investments for the year?
The best time to start planning your tax-saving investments is at the beginning of the financial year.
Most taxpayers procrastinate till the last quarter of the year, resulting in hurried decisions. Instead, if you plan at the start of the year, your investments can compound and help you achieve long-term goals. Remember, tax-saving should be an additional perk and not a goal in itself.
Use the following pointers to plan your tax-saving for the year:
- Check the tax-saving expenses you already have – like insurance premiums, children’s tuition fees,EPFcontribution, home loan repayment etc.
- Deduct this amount from Rs 1.5 lakh to figure out how much to invest. You needn’t invest the entire amount if expenses are covering the limit.
- Choose tax-saving investments based on your goals and risk profile. ELSS funds,PPF, NPS and fixed deposits are some of the popular options.
This way, you can figure out how to exhaust the 80C limit. It is best to begin investing in the first quarter of the financial year so that you can spread the investments over the year. Doing this won’t burden you at the end of the year and will also allow you to make informed investment decisions.
For more on tax-saving investments and expenses,read our extensive Section 80C guide.
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